Cuba’s Cooperatives “Without Papers”

By José Jasán Nieves Cárdenas  (Progreso Semanal)

cooperativas-1HAVANA TIMES — While hundreds of new non-agricultural cooperatives struggle to get started or sustain themselves, a growing group of private workers are partnering on a voluntary basis and operating as de-facto cooperatives ‘without papers.’

To them, bridled stallions, the ‘birth certificate’ that makes them cooperatives is not just another bit of red tape but also the only way to organize the business model properly.

Proposals to create cooperative enterprises in sectors such as construction, fishing, advertising and computer services have been approved by the provincial governments but are awaiting a final decision from the Council of Ministers.

“We function de facto like a cooperative, because the decisions are made and debated among ourselves, but, until we receive an authorization, we are self-employed entrepreneurs,” explains Enrique Steven Lagar, future president of INCO, a construction initiative that has been after a permit since early 2013.

“After we studied the legislation, we submitted our project,” says Ernesto Flores Castillo, would-be manager of TISOFT, a group of communications and electronics engineers. The firm applied for a permit in June 2013; after one year without a response, it received an advisory that “the rules are still being studied” to enact that modality in the second half of 2014.

The Cuban government responds to requests for speedy approval by reminding applicants that this is an “experimental” process. According to President Raúl Castro, “we have to analyze, not act as if what was designed is impeccable […] We cannot hurry in the constant approval of these cooperatives. We shall go at a suitable pace.”

But while the pace remains cautious, the state’s coffers fail to receive more revenue, in the form of taxes these associations — currently self-limited in their production — could pay.

“In 2013, we paid 250,000 pesos in taxes (more than $12,000 USD) and had projected paying 1 million pesos in 2014 if we had been a cooperative,” Flores says.

“If we secured contracts for 1 million pesos in a year, which is very possible, we could pay 345,000 pesos (about $17,000 USD) in taxes,” says Steven. While Steven can show a list of the projects he has completed, he bewails the larger number of projects he has failed to do because his cooperative hasn’t been approved.

The calculations are based on a study of the differences between the tax rates for private workers and cooperatives, which motivate the former to stop at a specific income plateau. Earning more money means paying higher taxes — a risky proposition for self-employed workers.

According to the tax laws, independent workers can claim 30-to-50 percent of their annual income as expenditures in order to calculate a “taxable base” that takes half of the earnings above 50,000 pesos reported. On the other hand, cooperatives can deduct 100 percent of their expenditures and pay 5 percent less in taxes on “revenues” (profit) throughout the graduated scale.

Redis, a cooperative in the making.
Redis, a cooperative in the making.

Competition or complement?

In the living room of a private home in the city of Cienfuegos, negotiations are made for the printing of labels on pullovers, cars and signs by REDIS, a “cooperative in the making.” A similar firm, already authorized by the government, operates in Varadero.

“With the legal status afforded by this category [as a cooperative], I can reach more clients, even those who today won’t even allow me into their offices because ‘they have nothing to say’ to independent entrepreneurs,” says Raydel Argudín, the organizer of REDIS.

That legal backing is one of the principal goals of these entrepreneurs, because in their present state they encounter constant resistance from functionaries who interpret the laws at their own discretion.

“Now it turns out that, in order to repair computer equipment, the Agriculture companies, for example, must have a document certifying the inability of a state-run supplier to do that job. COPEXTEL (the government’s monopoly on computer service) won’t issue that document even if reality shows that it cannot take on many repair jobs,” says the TISOFT representative.

“That’s not legislated anywhere,” he adds with conviction. And he is right.

“To obtain the merchandise, we have to become magicians because much of the raw materials are sold to us by the state-run company that offers the same services that we do and, because we are its competitors in some provinces, they deny us the opportunity to buy,” complains Argudín.

For that reason, Flores Castillo, the computer specialist, prefers to avoid comparisons or references to his group as a “competitor to the state-run businesses,” even though — in reality — it is.

“I’d rather say that we are their complement, because we take on the small jobs that a state-run business doesn’t consider profitable or attractive. Would a company that bills millions of pesos be interested in repairing three photocopiers of different makes that broke down several years ago? Of course not! But we are, because little by little we build up our revenue,” Flores explains.

Fears and restraints

After the state took over all private property in 1968, independent efforts were stymied until permits were issued during the height of the economic crisis of the 1990s, given out as a “lesser evil.” With the reforms being carried out by Raul Castro, this perspective changed despite there still being ghosts of the past.

The experience of a young computer engineer working in a Transport Ministry company shows how deeply rooted resistance can be.

“In the office, we have a multifunctional printer that needs only the replacement of an internal device that was fried by a voltage surge. We also have two laser printers that are inoperative because there are no ink cartridges available to replace the empty ones. I found an independent worker who could solve both problems, but my company manager flat out refused to call him,” she says.

“No, no. Computer repairs? That’s a major pain … let’s leave it as is,” her boss told her. “What do you need? Printers? We’ll make out a purchase order and that’ll settle it.”

“It’s worrisome that it is easier to buy new equipment than to pay a lot less for a repair job,” the woman says.

The woman’s husband, also a computer specialist, had a different experience.

When computers essential for production broke down at the Cienfuegos branch of the Cuban Bread Company, its director didn’t wait for “guidance from Havana” because none was available. He went through the tortuous task of applying for authorization, asked for a special permit for that one occasion, and was allowed to hire a private contractor to repair the computer’s motherboard.

“In the end, we fretted over nothing, because the private repairman solved what no state-run company in the region could solve. And with a lot more efficiency, quality, and even a warranty!” the young engineer said.

That excess of precaution, frequently seen in business, goes against the policy declared publicly by the vice president of the Council of Ministers, Marino Murillo, who is in charge of leading the country’s economic “updating.”

“What’s always questionable — no matter who gets paid — is the irrationality of the disbursement, not the use by persons with non-state formulas,” Murillo told the Cuban parliament.

The difficulty for these and other groups in gaining legal recognition as cooperatives could be the resistance and fear to grant self-employed labor greater importance in the economy as a whole.

The new balances and possible linkups between the various forms of management and ownership are, among others, major challenges facing the economic reforms in Cuba. But pronouncements are one thing, reality is another. The authorities don’t seem in a hurry to loosen some of their reins.

9 thoughts on “Cuba’s Cooperatives “Without Papers”

  • Thank you, Jose Jasan Nieves Cardnas, for an excellent article.

    In the cooperative republican view, any enterprise under socialist state power which builds the economy, releases the creative potential of citizens, and is consistent with the National Plan, is “socialist” in essence.

  • Hello, comrade Pedro. While we may disagree regarding Messrs. Engels, Marx, and that other guy, we still should be able to agree on one important theoretical matter, the historic redefinition of what constitutes “socialist property.”

    The “classic” definition began in 1848 with the last two pages of the second chapter of the Communist Manifesto. Socialist property was set forth as state property of the so-called dictatorship of the proletariat.

    The Marxist movement worldwide, as you well know, has adhered doggedly to this definition. (Raul and Fidel adhere to it to this day.)

    That is, state property is socialist property; and only state property can be considered socialist. But there is another view.

    The other view is that, as long as there is socialist state power, and as long as the socialist leadership party is doing the macro-planning through a reasonable and scientific National Plan, then “socialist” property can take many different forms.

    Yes, the state might own all sorts of enterprise directly, and this surely would be considered “socialist.”

    But what about a privately-owned tobacco farm? a worker-owned non-agricultural cooperative? a privately-owned barber shop or nail salon? a single-family-owned restaurant or hotel?

    The new way of thinking, the new way revolutionaries should look at it is different from the old, “classic” way. We should view any and all enterprise under socialist state power as “socialist,” if it releases the creative potential of working people, builds the economy and is consistent with the socialist National Plan.

    If we can agree on this one fundamental point, Pedro, then we can come to understand that authentic, functional socialism might also be call a form of “social-capitalism.” That is, instead of the bureaucratic “state-monopoly-capitalism” of the old, “classic” definition, we would have non-bureaucratic, truly socialist “social-capitalism.”

    This may take a while to digest, but I hope you will think about it, and see if your theory might be tweaked.

    In my view, in the cooperative republican, truly socialist view, private property rights ought to be valued and employed under socialist construction. The elimination of classes ought to proceed through democratization of private property ownership, rather than its premature abolition by a faulty “classic” mindset. Cheers.

  • The only “good part” of the Cuban Revolution which Raul is careful not to upset is the regime’s iron grip on political power. He is willing to gradually allow a few co-operatives and self-employed businesses to operate. The regime needs the taxes they can extract from their productivity. But as soon as the regime sense any power slipping away from them, they will move forcefully to shut down the co-operatives.

  • Three remarks:
    – the so-called achievements of the Cuban revolution (health system and education) are all but destroyed as far as the Cuban people are concerned
    – as an anarchist you should reject the Stalinist top-down approach to the reform outright and should support the idea that exclusions in the common good are the only acceptable way to proceed rather that lists of allowed activities and economic formats.
    – Cuba indeed has a totalitarian system. There is not democracy in Cuba be it direct or indirect. The totalitarian system relies on “direct repression” and total control. Direct democracy also only functions in small local setting. You can’t have a referendum on every law. Note that the only real attempt at direct democracy in Cuba, the Varela project, was quashed by the regime in an unconstitutional manner.

  • A central planning system is doomed to fail as it always is out of step with the economic reality and the needs of the people. the recent “changes” in the economy still show a central planning mindset with “lists” of “allowed” independent activities. Those list are ludicrous. Cuba should take a wholesale approach at reform using no exclusion if possible and if needed a small list of activities from which private initiative is excluded. The regime should also provide the required legal framework (partnerships, cooperatives, limited liability companies, …) to operate under.

  • Everything is very clear: not yet having achieved the cooperative release of the regulations and restrictions of bureaucracy, without there even a broad policy aimed at promoting it, this form of socialist production is soaring high above the possibilities afforded him the state and are solving many problems that may never face bureaucratic state enterprises. Urge a relaxation of the current rules on cooperatives remove those absurd permissions. If they could be present documentation of the cooperative so that it starts working. The state should also encourage this type of company loans, import and export facilities and suspend payment of taxes for 10 years at least. A foreign capitalist enterprises, the new law provides 8 years of tax exemption.

  • As Raul Castro pointed out, this is a process that has to be introduced carefully so as to not damage the good parts of the Cuban Revolution as it improves the general lot of the Cuban people.
    My anarchist belief system holds that cooperatives are the way to go with all workers as equal partners and with equal input .
    Cooperatives are pure democracy in action and there is no better way to run any business or government than from the bottom up without which structure , democracy of any sort is impossible.
    The Marxist aspects of the Cuban revolution demand hierarchical government and workplace structures which, again, according to anarchist beliefs , inevitably leads to self-preservation, corruption and totalitarianism which is what exists.
    This branching off of the workforce into democratic cooperatives is a giant step toward the democratic society Cuba can become.
    At present it seems to be the only route out of Cuba’s totalitarian government and economic forms .
    The wrong way to go is with non-cooperative enterprises which exist for the wealth building of the owner/ entrepreneur and not for the mutual benefit of all workers. It’s capitalism with another name and just as poisonous to Cuba .
    The opponents of the revolution will be in for some very sad times if and when cooperatives become the way of life in Cuba and direct democracy gets a serious foothold in Cuban society.
    Democracy would kill capitalism which is all they ever wanted in Cuba.
    The lessons in how to work together in that direct democracy cooperative fashion will ultimately lead to direct democracy in government as well -as long as a formal government is needed, that is.

  • In this overview by José Jasán Nieves Cárdenas I see a process that has hope. The pertinent minister is pushing for resolution of some of these particular contradictions. ““What’s always questionable — no matter who gets paid — is the
    irrationality of the disbursement, not the use by persons with non-state
    formulas,” Murillo told the Cuban parliament.”

    Of course there will be people who resist change, and I suggest this is
    not all bad. Why throw out the baby with the bathwater? But if there are
    ways for a rational addition to the economic complex, it is worth struggling for.

  • “…in order to repair computer equipment, the Agriculture companies… must have a document certifying the inability of a state-run supplier to do that job. COPEXTEL (the government’s monopoly on computer service) won’t issue that document even if reality shows that it cannot take on many repair jobs,…That’s not legislated anywhere.”

    That is a perfect example of why the so-called economic reforms have not and will not improve the lives of the average Cuban. Individual initiative is stifled at every step, State run monopolies abuse powers to crush any potential competition, institutionalized corruption flourishes, and the rule of law is weak and arbitrary.

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